Pricing is one of the most effective ways to manage a credit card portfolio. It can drive new accounts and card usage, help control losses, retains or drives away customers, and impacts yields and balance growth. But pricing is much more than simply deciding whether to offer cards at 11.99% or 13.99%. Optimizing pricing for a prescribed goal or set of goals, such as revenue or balance growth, requires a cross-functional/multi-disciplinary view across multiple business areas. Understanding the impact of timing in making price changes, leveraging communication efforts, utilizing risk management techniques such as credit line increases, the impact to balance growth and losses, and utilizing sophisticated analytic techniques including multivariate randomized test designs and price elasticity models are all critical to the success of the exercise.
True price optimization has traditionally been a tool reserved for the largest and most sophisticated financial institutions. With teams of mathematicians, statisticians and analysts at their disposal, these firms have had the luxury of isolating opportunities in segments of their portfolios that other issuers have not. “How and when should we re-price an account? What selected pricing lever will drive the desired behavior from our customer? How can we improve the retention of balance transfers and other promotional account customers? How can we improve the yield on riskier pools of accounts without affecting others who appear to be performing well?” These and many other questions are all critically important. The answers can unlock improved portfolio performance for financial institutions.
The importance of optimizing price has been spurred by major challenges to the North American lending environment. Economic distress has caused delinquencies and losses to climb, portfolio growth has slowed, regulatory changes in both the U.S. and Canada are being implemented, disincenting some issuers from extending credit, and customers are much more aware of prices and interest rates than in the past. In this environment, improving portfolio performance is not just important, it is critical.
Profit Technologies conducts in-depth data driven reviews of our clients’ pricing levers; with the goal of driving improved performance including revenue and/or balance growth opportunities influenced by pricing. Our pricing and analytic experts have created sophisticated pricing systems and implemented them at some of the largest issuers in the market. We are now able to deliver this expertise to our clients.
Using our proprietary approaches and techniques, along with our clients’ existing metrics, reports, and segmentation tools, we will conduct a comprehensive “pricing study” of products, segments, channels, marketing communication, and pricing techniques – focusing on the impact of existing pricing strategies, market pricing, and the impact of making changes to existing pricing strategies; all while being sensitive to pending legislative changes and our clients’ performance goals.
At the conclusion of our work, we will deliver a set of tactical pricing changes to “optimize” the performance of our client’s portfolio for profitable growth. We work diligently to match our clients’ pricing strategies with their customers’ credit needs, utilizing the same techniques that the airlines, hotels, and a host of other industries have perfected – charging customers different prices for similar products or services and matching product offerings based on customer demographics and preferences.
True portfolio optimization goes far beyond providing suggestions to customer service representatives in offering various price/product combinations to a given customer. Superior optimization requires advanced skills and analytic techniques to ensure that the right set of account pricing is offered to the right customer at the right time. We have the advanced skills and know-how to get it done for you. Give us a call and let us show you how to drive improved portfolio performance.